Buying a Company in Brazil: Due Diligence Essentials for Foreign Acquirers

Acquiring a Brazilian company is often the fastest way into the market: the buyer gets a licensed business, customers, employees and a tax history from day one. It also inherits that history. Under Brazilian law, tax and labor liabilities follow the business, environmental obligations follow the property, and anti-corruption liability survives mergers. Large deals need clearance from the competition authority before closing. This guide summarizes the rules that should shape the due diligence and the deal structure for a foreign acquirer.

Share deal or asset deal

Foreign buyers sometimes assume an asset deal leaves liabilities behind. In Brazil, that protection is limited.

Successor liability: what follows the business

Tax

Under the National Tax Code (CTN):

• the company resulting from a merger, incorporation or transformation answers for the taxes owed by the companies it succeeds, up to the date of the act (article 132);
• a buyer that acquires a business establishment and continues the activity answers for its taxes owed up to the acquisition: fully, if the seller stops trading, or secondarily, if the seller continues or starts a new activity within six months (article 133);
• successor liability covers taxes assessed before or after the transaction, as long as the taxable event occurred before it (article 129);
• property taxes follow the real estate unless proof of payment is included in the deed (article 130).

Acquisitions in bankruptcy or of units sold in judicial reorganization are excluded, with exceptions for related parties.

Labor

Changes in the ownership or legal structure of a company do not affect employees’ acquired rights or employment contracts (CLT, articles 10 and 448). The successor is liable for labor obligations, including those from the seller’s period; the seller is jointly liable only if the transfer was fraudulent (article 448-A). A departing quotaholder remains secondarily liable for the period in which they were a partner, in claims filed up to two years after the exit is registered.

Booked debts in an asset deal

When a business establishment is sold, the buyer answers for prior debts that were properly recorded in the books, and the seller remains jointly liable for one year. The transfer is effective against third parties only after it is registered with the Commercial Registry and published, and if the seller is left without enough assets, it depends on creditors’ consent. Unless otherwise agreed, the seller cannot compete with the buyer for five years (Civil Code, articles 1,144 to 1,147).

Environmental and anti-corruption

Environmental obligations are attached to the property: they can be enforced against the current owner or possessor, previous ones, or both (Superior Court of Justice, Precedent 623). Under the Clean Company Act, liability for corrupt acts survives mergers and incorporations, limited for the successor to fines and full repair of damage up to the value of the assets transferred (see anti-corruption compliance in Brazil).

Merger control: CADE approval before closing

Transactions must be notified to the Administrative Council for Economic Defense (CADE) and approved before closing when at least one group involved had gross turnover in Brazil of at least R$750 million in the previous year and another had at least R$75 million (Law 12,529/2011, article 88, with the thresholds updated in 2012). CADE has up to 240 days to decide, extendable in specific cases, although most cases are cleared much faster under the fast-track procedure. Closing before approval (“gun jumping”) can void the transaction and result in fines of R$60,000 to R$60 million. CADE can also require notification of smaller deals within one year.

Tax points in the deal

• Goodwill: after the acquired company is merged with the acquirer, goodwill from an acquisition between unrelated parties can be deducted for corporate income tax at a maximum of 1/60 per month, provided an independent appraisal (purchase price allocation report) was filed with the Federal Revenue or registered by the last business day of the 13th month after the acquisition (Law 12,973/2014 and Decree-Law 1,598/1977). Without a timely report, the deduction is lost. This shapes the post-closing structure.
• Seller’s capital gains: gains of a non-resident seller on Brazilian quotas or shares are taxed under the rules for residents, at progressive rates from 15% to 22.5%, or 25% for sellers in tax havens. When the buyer is also non-resident, the buyer’s attorney in Brazil is responsible for withholding and paying the tax (Law 10,833/2003, article 26).
• Central Bank: the foreign buyer’s investment must be registered in the Central Bank’s SCE-IED system, including events such as contributions of foreign shares, within the applicable deadlines.

What due diligence should cover

1. Tax: tax returns and payments, tax clearance certificates, ongoing assessments and litigation, tax regime, use of incentives, transfer pricing and indirect taxes (ICMS credits are a frequent source of exposure).
2. Labor and social security: classification of contractors, overtime practices, collective agreements, labor lawsuits, eSocial consistency and outsourcing arrangements.
3. Corporate: chain of title of quotas, corporate acts filed with the registry, powers of attorney, related-party contracts.
4. Contracts: change-of-control clauses, exclusivity, public contracts.
5. Real estate and environmental: property titles, liens, licenses and contamination risks.
6. Regulatory and compliance: sector licenses, data protection, anti-corruption controls and interactions with public officials.
7. Financial: quality of earnings, working capital and the reconciliation between management accounts, statutory books and tax returns.

Findings usually translate into price adjustments, specific indemnities, escrow or holdback amounts, and conditions to closing.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. We support acquirers with financial and tax due diligence on the accounting and tax side, reconcile the target’s books with its tax returns, and after closing integrate the acquired company into the group’s reporting, accounting and compliance routines. See our tax advisory service or read how to set up a subsidiary in Brazil if you are comparing building with buying.